How does the uncertainty in the global financial markets impact your outlook on the Michigan economy this year?

It increases the uncertainty, I guess. And in the near term, the additional uncertainty creates a pause on the activity of all businesses in terms of hiring and lending.

Until the financial markets are able to work out what are good risks and what are bad risks ... I think that causes a pause on activity. But how much and how severe depends upon how severely they clamp down on the credit markets and then when it eases - at least eases for credit-worthy borrowers.

It's unsettling to see such dramatic swings in the global markets on a day-to-day basis.

Financially, I don't think it makes any difference to the economy. But on a personal basis, yeah it's unsettling. But relative to the economy overall, I don't think it makes much difference.

Do you think this country is in a recession yet?

No, actually I don't think so. I think we'll be close to one, but I think we'll avoid it. But we'll let somebody with better judgment (decide).

They don't judge if we're in a recession with current conditions. It tends to be about 10 months after the recession ends actually until they tell us officially that we've been in one. It will be hindsight.

And they get the benefits of hindsight to make that call. Right now, I think we'll avoid it. But when they get to make that call, they've got a lot more information than I do.

If we are in a recession or do hit one, what kind of an impact would that have on the Michigan economy?

It will make its recovery more challenging. Particularly in the auto industry, it would cause a further decline in auto sales, which of course will hurt GM, Ford and Chrysler. I think that would be the biggest factor.

It would probably also compound the problem with regard to the housing sector. Although it's hard to see how that could get much worse. And businesses, if they really think we're in a recession, would probably pull back on their investment spending.

If you look at recessions historically, that's been one of the big changes. A lot of Michigan firms are not just tied to the auto industry, but they basically make equipment and machinery that goes into factories and office buildings ... And if we go into a recession, business spending on those areas will pull back.

Is the impact of a recession greatest simply because of the psychological ramifications of it, or is the impact of the real slowdown in GDP greater?

By definition, a recession reflects a real slowdown in real GDP growth, or actually a decline in real GDP. And so that's a real effect.

I think we'll bear the brunt of the psychological effect of a recession whether one happens or not - whether the statistical gurus at the National Bureau of Economic Research decide if we're in a recession or not.

No matter what the answer to that question, the psychological impact of this slowdown will be felt by a lot of residents of Michigan.

Will Michigan's housing market continue to struggle until we turn around economically?

Yes it will. Until the auto industry employment stabilizes at some level or begins to decline at a very slow rate so that it doesn't affect us in the same way, I think we'll see the housing industry continue to struggle.

And then it may take a little while after the auto industry and the real economy recover before the housing industry turns around. Housing prices were slow to adjust downward relative to the market conditions, and buyers of homes will be reluctant to allow prices to go up once the economy turns around.

So there's a big lag. Housing is one of the lagging indicators. It's not a leading indicator.

The federal economic stimulus package - approved this month - will send tax rebates to individuals this spring. What can that do to help Michigan?

There's a great deal of debate on that effect. It would be hard to believe that you wouldn't get some sort of immediate boost to spending, but one of the complications is it's not a long-term boost. It's a short-term boost.

So economists can't quite figure out if people react differently to short-term extra spending in your pocket than they do in the long run. Typically the short-term isn't assumed to have quite the bang as long-term cuts in taxes.

It may have some effect and it may have some psychological effect to get people to spend. But most people would think that it's probably not going to change the course of history dramatically.